Shareholder Centre

It's going to be a bad week for Wayne Swan

Last year's budget has left Labor in an impossible position ahead of the election. This years' will simply be about trying to announce the least bad numbers.

The most interesting parts of Laurie Oakes’ interview with Treasurer Wayne Swan yesterday were the questions.

“…your budget speech last year - would you agree in retrospect it makes hilarious reading?”

“You said for example, the deficit years of the Global Recession are behind us, the surplus years are here, now, that'll have people laughing in the aisles...”

“Why would anyone believe you (now) after the fiasco of last year?”

“Climate change Minister Greg Combet is quoted today as saying Labor people should be confident of victory in the election.

Swan: I believe that. I believe we will win the election.

Oakes: What's he been smoking - have you been smoking the same thing?”

It was a shockingly contemptuous interview, and Swan’s answers were desperately unrevealing, simply trying to get through it.

It’s going to be a bad week for Wayne Swan, with more of that sort of thing to come. Last year’s budget WAS a fiasco and the Treasurer’s credibility, and that of the government, is in shreds as a result.

When Oakes said the 2012-13 deficit could be $17 billion instead of the surplus forecast a year ago, Swan agreed. Other forecasts go as high as $22 billion.

Former Treasury economist, Stephen Anthony of Macroeconomics, estimates the structural budget deficit for 2012-13 at $41.3 billion and above $20 billion through to 2016-17.

I wrote here last year that it was a “big taxing, big spending” budget. The big taxes didn’t come through, but the spending went ahead anyway. The resulting structural deficit will need either an unlikely surge in tax revenue or a major fiscal consolidation to put right.

Because of last year’s budget, Wayne Swan has left his party in an impossible position four months before an election: unable to reconcile the ambition and optimism required to win an election with the responsible fiscal management that’s also required to win an election.

But as interesting as Wayne Swan’s budget will be, Tony Abbott’s reply speech, as well as his and Joe Hockey’s policy announcements between now and September 14, will be more so.

Tuesday’s budget will simply be a futile attempt to announce the least bad numbers, to juggle the structural deficit starting point, the cost of the ambitious welfare and education programs already announced, the collapse in tax revenue, sub trend growth (according to the Reserve Bank), and come up with a deficit figure for 2013-14 that is vaguely defensible.

However the Coalition has revealed nothing to suggest it would be in a different position; in fact on what we actually know, as opposed to the rhetoric, it would be far worse.

The Coalition supports the NDIS and the Gonski education funding proposals, and does not support any spending cuts announced by the government. And Abbott and Hockey have two big turkeys of their own: their direct action (grant-based) climate change policy and the paid parental leave scheme.

Troy Bramston, writing in The Australian this morning, calls the Coalition’s climate change policy “probably the worst piece of public policy ever presented to voters by a major party”, and it’s hard to disagree.

To achieve the same emissions reduction as the government’s scheme, which is what the Coalition is promising, would cost $100 billion in grants to companies.

It is imperative that between now and September, the Shadow Minister for Climate Action, Greg Hunt, emulates Malcolm Turnbull’s achievement and moves his leader and party to a more sensible policy, one that includes an emissions trading scheme (Turnbull moved the Coalition from abolishing the NBN to embracing a version of it). Actually, it’s probably too late now. Hunt should have been working quietly on this for the past two years, as Turnbull did.

Apart from the fact that it’s another policy turkey, the paid parental leave scheme is the tip of an iceberg of conflict between the future Prime Minister and the future Treasurer in any incoming Coalition government.

Hockey has spoken forcefully and convincingly about the need to end the age of entitlement, especially middle class welfare. The paid parental leave scheme, which Abbott announced without taking it to the Shadow Cabinet, shows clearly that he doesn’t agree.

It’s supposed to be “fully funded” by an extra tax on large companies, which is bad enough in itself. But of course it will cost much more than predicted because it is demand driven and open-ended.

IMPORTANT: This information has been prepared without taking into account your objectives, financial situation or needs and you should consider if the information is appropriate for you before making an investment decision. Unless otherwise specifically stated or disclosed (such as the InvestSMART Diversified Portfolios Product Disclosure Statement), neither InvestSMART Financial Services Pty Ltd nor any of its Related Companies make any recommendations as to the merits of any investment opportunity referred to in its emails or its related websites. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about the product. All indications of performance returns are historical and can not be relied upon as an indicator for future performance.